Microsoft's New Culture Has Raised Shares

Since January 2014, Microsoft's shares have soared 143% from around $37 to $90, a price way above the previous high under CEO Bill Gates in 2000. Over the last five years, Microsoft's revenues have grown at an annual rate of 4.1% to around $90 billion in 2017, with net income increasing at a rate of 4.6% to $21.2 billion meaning they have yielded a 23.5% net profit margin.

In its second quarter report (announced 31st January), Microsoft reported a 12% increase in revenue. Despite only making 2% growth to $12.2 billion in its More Personal Computing unit, (which includes Windows, devices, gaming and search advertising) Microsoft was able to report faster growth in its Gaming (up 8%); Productivity and Business Processes segment- including Office, Dynamics and LinkedIn (up 25%); and Intelligent Cloud- Windows Server and SQL Server (up 15%).

Before taking over as CEO, Satya Nadella created Microsoft's cloud service, Azure, which reported 98% growth in the second quarter.

One of the reasons which may underline these results is Microsoft's change in culture. Nadella has changed Microsoft's culture in a way that made current and potential customers feel that the company care about their success. Nir Tenzer (CEO of nsKnox Technologies) believes he has managed to "motivate millennials and unite its 170 subsidiaries." Nadella made these changes in the face of significant challenges at Microsoft. The company not only had to improve the way it interacted with customers but also how it created "new products and services to existing customers. The main challenge with new markets, new products and a new business model, was how to grow and scale. Overcoming these challenges required the to change the way they developed products and managed people.

Nadella dubbed their new culture "the growth mindset". They are now encouraging "learning, trying and even failing". This new mindset has made employees enthusiastic about learning and stepping outside of their comfort zone. This boosted their sales and helped partners and customers. The new products ad services also created new opportunities with new groups of customers.

However, some people at Microsoft found reason to complain about the new "growth mindset". Nadella responded to this with an ultimatum at a meeting of his 150 top executives. "To be a leader in the company, your job is to find the rose petals in a pile of s***. You are champions of overcoming constraints."